So where are all the fake Olympic goods?

Commentary: It seems China's enforcing intellectual property rights

By

BruceMcLaughlin

SHANGHAI (MarketWatch) -- Walk down a tourist shopping street in any major city in China, and you'll be constantly assailed by pushy people in cheap suits trying to sell you all sorts of counterfeit goods: watches, shirts, handbags, shoes, or anything with a brand name on it. "Hello, Sir! Copy watch? Bag?" will ring in my ears long after I leave China. It's one of the most irritating aspects of daily life as an expat here.

Look at counterfeiting in more depth, and you'll find much more than just fake luxury brands. For every factory turning out cheap clothing bound for Target, H&M and Wal-Mart, there's another spewing out knock-off sunglasses, light bulbs and food by the container ship-load.

The curtain fabric at my daughter's pediatrician shows Disney's Mickey Mouse, United Features Syndicate's Snoopy, and Sanrio's Hello Kitty and romping around together in a cheerful melee of patent infringement.

But I've never been offered counterfeit Olympic merchandise.

Smart official Olympic merchandise stores sell all manner of genuine, expensive knick-knacks. There's clearly a market for these high-value goods, and if there's one thing that China's counterfeiters are good at, it's spotting a gap in the market. So where are all the fake Olympic goods?

When I spoke to my colleagues about this, they thought it was hilarious. "You'd have to be mad to try making fake Olympic stuff!," they said.

For once, it seems, China is actually enforcing intellectual property rights. For those of us who have been battling for years to protect our clients' brands, this has come as something of a surprise. But at the moment, there seems to be little sign of this improved IP protection spreading from Olympic merchandise to the rest of the economy.

China has, in fact, promulgated specific regulations to protect the Olympic brand. In 2002, soon after winning its Olympic bid, China published the Regulations on the Protection of the Olympic Logo.

If existing IP protection legislation were adequate, surely there would be no need for specific regulation to protect one small group of trademarks. There are no Regulations on the Protection of French Handbag Brands, as far as I'm aware.

At the moment, every major brand operating in China suffers from this epidemic of counterfeiting. Luxury-goods makers such as LVMH, Gucci, Tiffany, Mont Blanc and Prada face fake products on sale on street corners and, notoriously, eBay, damaging their exclusivity. FMCG manufacturers such as Unilever, Coca-Cola and Procter & Gamble have to deal with poor-quality fakes damaging their reputations with the increasingly potentially lucrative Chinese consumer.

Huge volumes of fake printer cartridges, CD drives, MP3 players and other electronic products are being made in China and sold domestically and worldwide, hitting the profits of international companies such as HP, Lexmark and Apple. A select few companies enjoy a windfall benefit from this: many middle-class Chinese favor retailers such as Best Buy, Tesco and Carrefour, in the belief that they do not stock fakes.

Legislation for non-Olympic brands may be creaky, but the bigger problem is a lack of enforcement. The people selling fake handbags on Huaihai Road in Shanghai do so openly, in front of the police, knowing there's no chance of punishment. But they're all aware that they would be in trouble if they were to start selling fake Olympic souvenirs, so few of them ever try.

At the manufacturing end, some large-scale counterfeiters hide behind the thinnest veneer of a legitimate business; others don't even bother: as long as they're not making Olympic merchandise, they feel safe.

In our experience, the difference between the protection of the Olympic brand and commercial brands is the level to which the authorities take the initiative. Local Administrations of Industry and Commerce and the police will take action against Olympic counterfeiters of their own accord, but they very rarely take action independently to act to protect any other brand.

The picture isn't entirely bleak for the owners of international brands, though. When we work on IP protection projects, we find that the local authorities are cooperative, as long as they're told exactly what they have to do, and why they have to do it.

It is up to us to identify the counterfeiter, collect evidence, establish when there will be a significant volume of fake goods at the site, and provide full information on the factory's layout, its equipment and its ownership. When presented with this a full set of information like this, the local AIC and police have little choice but to cooperate: we generally have no problem ensuring that the counterfeiters are properly punished.

Targeting retailers is like Whack-A-Mole: for every one that is closed down, another pops up, and the volume of fake goods at an individual stall is so small as to be meaningless. But by directly targeting large-scale manufacturers, and by cooperating closely with the authorities, we have found that it is possible to make a serious dent in the worldwide supply of fake goods.

Hopefully, the government will learn from its success in protecting the Olympic brand, and that it will extend this to protect domestic and international commercial brands. But, for the moment, China is still the favorite for the gold medal in counterfeiting.

Bruce McLaughlin is CEO of Sinogie Consulting, which provides corporate investigation, market research and policy analysis services from its offices in Hong Kong and Shanghai.

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